Chinese outbound M&A transactions continue rising: Deloitte

Chinese firms are more confident in making outbound mergers and acquisitions (M&A), despite volatility in the international financial markets, consultancy Deloitte said in its latest report.

For the first five months of 2014, there were 106 Chinese outbound M&A transactions with a total value of 31.7 billion U.S. dollars, Deloitte said late Thursday in the report.

The majority of the surveyed M&A practitioners believe that the number of Chinese outbound M&A transactions will grow as much as 30 percent in the coming year, it said.

The number of China's outbound investment deals has grown for four consecutive quarters since the second quarter of 2013, said Patrick Yip, head of Deloitte China M&A Services. "U.S. economic recovery and renminbi internationalization may provide favorable conditions for Chinese investors seeking more premium assets and larger market share abroad," he said.

In addition, distressed assets and depressed valuations in the Euro zone will probably attract more bargain hunters from China, particularly in the manufacturing, technology, media and telecommunications sectors, which are the primary beneficiaries of Chinese investment in the Euro zone, Yip said.

When it comes to transaction size, the report said the number of small-sized M&A deals with a value of up to 50 million U.S. dollars grew the most (by 65 percent year-on-year) in the first five months of 2014.

The proportion of mid- and large-sized M&A deals with values ranging from 50 million U.S. dollars to 1 billion U.S. dollars dropped, and the share of mega-deals with a value of over 1 billion U.S. dollars climbed gradually.

Surveyed respondents, however, seem to have a different view about the trends for the remainder of 2014. They expect a higher deal volume for mid- and large-sized M&A transactions alongside a reduction in the number of small-cap M&A transactions.

The findings indicate that Chinese investors may develop an appetite for larger transactions, said Dennis Chow, head of Deloitte Global Chinese Services Group.

It may indicate positive expectations as a result of easing regulations on capital transfers out of China, he said.

However, when compared with other developed countries from January of 2013 to May of 2014, total value of Chinese outbound M&A transactions was comparable with that of Germany and Japan, and only reached a quarter of that of the United States and half of that of the United Kingdom.

The report also analyzed the target regions for Chinese outbound M&A and found that Western Europe superseded the U.S. as the most popular target market for Chinese investors in the first five months of 2014.

In the Jan.-May period, Western Europe attracted 25 Chinese outbound M&A deals with a total value of 9.7 billion U.S. dollars, compared to 17 transactions in the U.S. with an aggregate value of 6.1 billion U.S. dollars.

A total of 95 percent of respondents said that Asia will attract the most Chinese outbound M&A investment for 2014.

When it comes to M&A challenges, surveyed respondents cited the difference in management culture of European and North American targets as the major obstacle. Other issues include financial constraints, exchange controls and convertibility of the Chinese currency yuan, or renminbi.

More respondents found professional advice crucial to realizing higher returns from the transactions, especially in due diligence, structuring, and post-merger integration issues, according to the report.